SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1998
Commission File Number
0-9811
BFC FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 59-2022148
------- ----------
(State of Organization) (I.R.S. Employer Identification Number)
1750 E. Sunrise Boulevard
Ft. Lauderdale, Florida 33304
----------------------- -----
(Address of Principal Executive Office) (Zip Code)
(954) 760-5200
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding for each of the Registrant's classes
of common stock, as of the latest practicable date:
Class A Common Stock of $.01 par value, 6,453,994 shares outstanding.
Class B Common Stock of $.01 par value, 2,355,407 shares outstanding.
<PAGE>
BFC Financial Corporation and Subsidiaries
Index to Consolidated Financial Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of September
30, 1998 and December 31, 1997 - Unaudited
Consolidated Statements of Operations for the nine and three
months ended September 30, 1998 and 1997 - Unaudited
Consolidated Statements of Stockholders' Equity for the nine
months ended September 30, 1998 and 1997 - Unaudited
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 - Unaudited
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition
September 30, 1998 and December 31, 1997
(in thousands, except share data)
(Unaudited)
Assets
1998 1997
---- ----
Cash and cash equivalents $ 1,157 604
Securities available for sale 919 1,478
Investment in BankAtlantic Bancorp, Inc. ("BBC") 76,844 72,185
Mortgage notes and related receivables, net 1,766 1,859
Investment real estate, net 6,496 9,700
Real estate held for development and sale 2,538 6,474
Other assets 4,031 6,571
------- ------
Total assets $93,751 98,871
======= ======
Liabilities and Stockholders' Equity
Subordinated debentures, net 6,782 7,263
Deferred interest on subordinated debentures 2,110 2,106
Mortgage payables and other borrowings 12,344 22,943
Other liabilities 709 706
Deferred income taxes 13,644 11,711
------- ------
Total liabilities 35,589 44,729
Stockholders' equity:
Preferred stock of $.01 par value; authorized
10,000,000 shares; none issued -- --
Class A common stock of $.01 par value,
authorized 20,000,000 shares; issued and
outstanding 6,453,994 shares in 1998 and 1997 58 58
Class B common stock, of $.01 par value; authorized
20,000,000 shares; issued and outstanding
2,355,407 in 1998 and 2,346,907 in 1997 21 21
Additional paid-in capital 26,114 23,525
Retained earnings 31,889 30,280
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Total stockholders' equity before BBC
accumulated other comprehensive income 58,082 53,884
BBC accumulated other comprehensive income -
net unrealized appreciation on securities
available for sale,
net of deferred income taxes 80 258
------- ------
Total stockholders' equity 58,162 54,142
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Total liabilities and stockholders' equity $93,751 98,871
======= ======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Operations
For the nine and three months ended September 30, 1998 and 1997
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Interest on mortgage notes and
related receivables $ 159 166 53 54
Interest and dividends on securities
available for sale and escrow accounts 178 365 49 110
Earnings on real estate rental
operations, net 683 772 277 251
Sale of real estate 8,134 992 4,417 843
Net gain from sale of stock -- 1,349 -- --
Equity in earnings (loss) of BBC 1,607 8,579 (2,852) 2,807
Other income, net 23 200 9 2
------- ----- ------ -----
Total revenues 10,784 12,423 1,953 4,067
------- ----- ------ -----
Costs and expenses:
Interest on subordinated debentures 373 595 115 155
Interest on mortgages payable
and other borrowings 1,161 1,533 303 496
Cost of sale of real estate 5,521 676 3,141 658
Expenses related to real estate held
for development and sale, net 107 172 36 84
Write-down of investment 184 -- -- --
Employee compensation and benefits 865 863 299 276
Occupancy and equipment 32 31 11 11
Reversal of provision for litigation -- (2,272) -- --
General and administrative, net 598 768 162 148
------- ----- ------ -----
Total cost and expenses 8,841 2,366 4,067 1,828
------- ----- ------ -----
Income (loss) before income taxes
and extraordinary items 1,943 10,057 (2,114) 2,239
Provision (benefit) for income taxes 395 3,042 (918) 505
------- ----- ------ -----
Income (loss) before extraordinary items 1,548 7,015 (1,196) 1,734
Extraordinary items:
Gain from debt restructuring, net of
income taxes of $114,000 for the
nine months ended September 30, 1997 -- 181 -- --
Gain from extinguishment of debt,
net of income taxes of $39,000 and
$29,000 for the nine and three month
periods ended September 30, 1998, and
$72,000 for the 1997 periods 61 115 44 115
Gain on settlements of litigation,
net of income taxes of $435,000
and $62,000 for the nine and three
month perids ended September 30, 1997 -- 692 -- 92
------- ----- ------ -----
Net income (loss) $ 1,609 8,003 (1,152) 1,941
======= ===== ====== =====
Basic earnings (loss) per share:
Before extraordinary items $ 0.19 0.88 (0.15) 0.22
Extraordinary items 0.01 0.12 0.01 0.03
------- ----- ------ -----
Net income (loss) $ 0.20 1.00 (0.14) 0.25
======= ===== ====== =====
Diluted earnings (loss) per share:
Before extraordinary items $ 0.17 0.82 (0.13) 0.20
Extraordinary items 0.01 0.11 -- 0.02
------- ----- ------ -----
Net income (loss) $ 0.18 0.93 (0.13) 0.22
======= ===== ====== =====
Basic weighted average shares outstanding 7,953 7,935 7,957 7,949
======= ===== ====== =====
Diluted weighted average shares outstanding 9,156 8,592 9,049 8,790
======= ===== ====== =====
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the nine months ended September 30, 1998 and 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Addi-
Compre- Class A Class B tional
hensive Common Common Paid-in Retained
income Stock Stock Capital Earnings Other Total
------ ----- ----- ------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $ -- 21 20,610 20,520 311 41,462
Comprehensive income
Net income $ 8,003 -- -- -- 8,003 -- 8,003
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 396 -- -- -- -- -- --
Reclassification adjustment
for gains and (losses) included
in net income (244) -- -- -- -- -- --
-------
Other comprehensive income 152 -- -- -- -- -- --
-------
Comprehensive income $ 8,155 -- -- -- -- -- --
=======
Net effect of other BBC
capital transactions -- -- (1,966) -- -- (1,966)
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- 152 152
5 for 4 stock split October 1997 5 -- -- (5) -- --
Exercise of stock options -- -- 156 -- -- 156
------- ------- ------- ------- ------- -------
Balance at
September 30, 1997 $ 5 21 18,800 28,518 463 47,807
======= ======= ======= ======= ======= =======
Balance at
December 31, 1997 58 21 23,525 30,280 258 54,142
Comprehensive income
Net income $ 1,609 -- -- -- 1,609 -- 1,609
Other comprehensive income,
net of tax:
Unrealized gain on securities
available for sale 105 -- -- -- -- -- --
Reclassification adjustment
for gains and (losses) included
in net income (283) -- -- -- -- -- --
-------
Other comprehensive income (loss) (178) -- -- -- -- -- --
-------
Comprehensive income $ 1,431 -- -- -- -- -- --
=======
Net effect of other BBC
capital transactions, net of
income taxes -- -- 2,529 -- -- 2,529
Change in BBC net unrealized
appreciation on securities
available for sale-net of
deferred income taxes -- -- -- -- (178) (178)
Exercise of stock options -- -- 60 -- -- 60
------- ------- ------- ------- ------- -------
Balance at
September 30, 1998 $ 58 21 26,114 31,889 80 58,162
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(In thousands)
(Unaudited)
September 30,
-------------
1998 1997
---- ----
Operating activities:
Income before extraordinary items $ 1,548 7,015
Adjustments to reconcile income before
extraordinary items to net cash
(used in) operating activities:
Equity in earnings of BBC (1,607) (8,579)
Depreciation 449 513
Expenses related to real estate held for
development and sale, net 107 172
Provision for income taxes 395 3,042
Amortization on subordinated debentures 8 11
Accretion of discount on loans receivable (31) (34)
Increase in real estate development
and construction costs (1,455) --
Gain on sale of real estate, net (2,613) (316)
Net gain from sale of stock -- (1,349)
Fundings for litigation settlement -- (1,801)
Reversal of provision for litigation -- (2,272)
Increase in the escrow for called
debenture liability -- (5,148)
Proceeds from escrow for called
debenture liability 2,161 --
Increase in deferred interest on
subordinated debentures 366 531
Accrued interest income on escrow accounts (96) (183)
Interest accrued regarding called
debenture liability -- 52
Decrease in other liabilities (53) (8)
Decrease in other assets 213 89
------- -------
Net cash used in operating activities (608) (8,265)
------- -------
Investing activities:
Proceeds from the sales of investment real estate -- 131
Proceeds from the sale of BBC common stock -- 3,720
Common stock dividends received from BBC 884 737
Purchase of securities available for sale (6,716) (19,039)
Proceeds from redemption and maturities
of securities available for sale 7,275 23,774
Principal reduction on mortgage notes and
related receivables, net 124 136
Addition to office properties and equipment -- (21)
Decrease in real estate held for development and sale 7,584 476
Improvements to investment real estate (83) (3)
------- -------
Net cash provided by investing activities 9,068 9,911
------- -------
Financing activities:
Issuance of common stock 35 92
Increase in borrowings -- 9,144
Repayments of borrowings (7,942) (12,232)
------- -------
Net cash used in
financing activities (7,907) (2,996)
------- -------
Increase (decrease) in cash and cash equivalents 553 (1,350)
Cash and cash equivalents at beginning of period 604 1,796
------- -------
Cash and cash equivalents at end of period $ 1,157 446
======= =======
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
BFC Financial Corporation and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
September 30, 1998
1. PRESENTATION OF INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
by BFC Financial Corporation (the "Company" or "BFC") in accordance with the
accounting policies described in its 1997 Annual Report and should be read in
conjunction with the notes to the consolidated financial statements which appear
in that report.
In the opinion of management, the accompanying financial statements contain such
adjustments as are necessary to present fairly the Company's unaudited
consolidated statements of financial condition at September 30, 1998 and
December 31, 1997, the unaudited consolidated statements of operations for the
nine and three months ended September 30, 1998 and 1997, the unaudited
consolidated statements of stockholders' equity for the nine months ended
September 30, 1998 and 1997 and the unaudited consolidated statements of cash
flows for the nine months ended September 30, 1998 and 1997. Such adjustments
consisted only of normal recurring items. The unaudited consolidated financial
statements and related notes are presented as permitted by Form 10-Q and should
be read in conjunction with the notes to consolidated financial statements
appearing in the Company's Annual Report on Form 10K for the year ended December
31, 1997. Certain prior year balances have been reclassified to conform with the
1998 presentation.
2. INVESTMENT IN BANKATLANTIC BANCORP, INC.
A reconciliation of the carrying value in BankAtlantic Bancorp, Inc. ("BBC") to
BBC stockholders' equity at September 30, 1998 and December 31, 1997 is as
follows (dollars in thousands):
September 30, December 31,
1998 1997
---- ----
BBC stockholders' equity $ 247,321 207,171
Ownership percentage 31.46% 35.57%
--------- --------
77,807 73,691
Purchase accounting adjustments (963) (1,506)
--------- --------
Investment in BBC $ 76,844 72,185
========= ========
At September 30, 1998, the Company owned 6,578,671 shares of BBC Class A Common
Stock and 4,876,124 shares of BBC Class B Common Stock representing 31.46% of
all outstanding BBC Common Stock. At September 30, 1998, the Company's ownership
of BBC Class A and B Common Stock was approximately 25% and 47%, respectively.
The aggregate market value of the Company's investment in BBC at September 30,
1998 was approximately $92.4 million or approximately $15.6 million in excess of
the carrying value in the financial statements.
In June 1998, BBC acquired Ryan, Beck & Co., Inc. ("RBCO"), an investment
banking firm that is principally engaged in the underwriting, distribution and
trading of tax-exempt obligations and bank and thrift equity and debt
securities. BBC issued 2,863,367 shares of Class A Common Stock to acquire RBCO.
Upon acquisition of RBCO, BBC assumed all options outstanding under RBCO's
existing stock option plans, resulting in the issuance of options to purchase
314,145 shares of Class A Common Stock at various exercise prices based upon the
exercise prices of the assumed options. The RBCO acquisition agreement provided
for the establishment of an incentive and retention pool, under which shares of
BBC's Class A Common Stock representing 20% of the total transaction value were
allocated to key employees of RBCO. The retention pool consists of 683,362
shares of restricted Class A Common Stock, which will vest in four years to
employees who remain for the period. As of September 30, 1998, BFC's ownership
percentage of BBC was calculated without regard to the 683,362 shares of
restricted Class A Common Stock held in the retention pool.
On March 20, 1998, BBC acquired Leasing Technology Inc. ("LTI"), a company
engaged in the equipment leasing and finance business. BBC issued 718,413 shares
of Class A Common Stock to acquire LTI. Upon regulatory approval, on June 30,
1998, BBC contributed the capital stock of LTI to BankAtlantic.
Pursuant to previously announced plans by BBC to purchase shares of its common
stock, during the nine months ended September 30, 1998, BBC paid $10.6 million
to repurchase and retire 738,500 shares of Class B Common Stock.
During the nine months ended September 30, 1998, BBC issued 907,319 shares of
Class A Common Stock upon the conversion of $5.9 million in principal amount of
BBC's 6 3/4% Convertible Subordinated Debentures due 2006.
On August 4, 1998, the Board of Directors of BBC granted pursuant to the
BankAtlantic Bancorp 1998 stock option plan 391,630 shares of Class A incentive
stock options and 89,525 shares of Class A nonqualifying stock options with a
$9.50 exercise price to officers of BankAtlantic. All of the incentive and
non-qualifying stock options are exercisable for BBC's Class A Common Stock,
with an exercise price equal to the fair market value at the date of grant. Also
on August 4, 1998, the Board of Directors of BBC granted 47,875 shares of Class
A incentive stock options to a beneficial owner of BBC at an above market price
of $10.45.
3. SECURITIES AVAILABLE FOR SALE
The composition of securities available for sale at September 30, 1998 and
December 31, 1997 was as follows (in thousands):
September 30, December 31,
1998 1997
---- ----
U.S. Treasury Bills $ -- 1,072
Commercial Paper 501 --
Investment in preferred stock 343 343
Other 75 63
------ -----
$ 919 1,478
====== =====
Market value at September 30, 1998 and December 31, 1997 approximated book
value.
4. CONSOLIDATED STATEMENTS OF CASH FLOWS
Other non-cash financing and investing activities and other supplemental cash
flow items for the nine months ended September 30, 1998 and 1997 were as follows
(in thousands):
September 30,
-------------
1998 1997
---- ----
Change in stockholders' equity resulting
from the Company's proportionate share
of BBC's net unrealized appreciation
(depreciation) on securities available
for sale, net of deferred income taxes (178) 152
===== =======
Transfers from escrow accounts to reflect
payments on the called debenture liability 248 10,765
===== =======
Net effect of other BBC capital transactions,
net of income taxes 2,529 (1,966)
===== =======
Net gain on debt restructuring, net of income taxes -- 181
===== =======
Net gain associated with the settlements
of the litigation, net of income taxes -- 692
===== =======
Net gain from extinguishment of debt,
net of income taxes 61 115
===== =======
BBC's dividends on common stock
declared and received in subsequent period 303 288
===== =======
Increase in equity for the tax effect related to
the exercise of stock options 25 64
===== =======
Deferred profit recognized 316 --
===== =======
Conversion of mortgage receivable to an
equity interest in an affiliated partnership -- 184
===== =======
Interest paid on borrowings 1,182 1,611
===== =======
Income taxes paid 30 --
===== =======
5. SUBORDINATED DEBENTURES
Included in subordinated debentures at September 30, 1998 and December 31, 1997
was approximately $5.3 million and $5.5 million, respectively, of debentures
that have been called. Such debentures do not bear interest. Included in other
assets at September 30, 1998 and December 31, 1997 was approximately $2.8
million and $5.0 million held in escrow accounts related to a portion of these
called debentures. In January 2000, any amounts remaining in escrow will be
released to the Company and after that date any payments on called debentures
will be paid directly by the Company.
6. EARNINGS (LOSS) PER SHARE
The following table reconciles the numerators and denominators of the basic and
diluted earnings (loss) per share computations for the nine and three months
ended September 30, 1998 and 1997 (in thousands, except per share data):
Nine months ended Three months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Basic Numerator:
Net income (loss) available
for common shareholders $1,609 8,003 (1,152) 1,941
====== ===== ====== =====
Basic Denominator
Weighted average shares
outstanding 7,953 7,935 7,957 7,949
====== ===== ====== =====
Basic earnings (loss) per share $ .20 1.00 (.14) .25
====== ===== ====== =====
Diluted Numerator:
Dilutive net income (loss) available
to common shareholders $1,609 8,003 (1,152) 1,941
====== ===== ====== =====
Diluted Denominator
Basic weighted average shares
outstanding 7,953 7,935 7,957 7,949
Options 1,203 657 1,092 841
------ ----- ------ -----
Diluted weighted average shares
outstanding 9,156 8,592 9,049 8,790
====== ===== ====== =====
Diluted earnings (loss) per share $ .18 .93 (.13) .22
====== ===== ====== =====
The Company has two classes of common stock outstanding. The two-class method is
not presented because the company's capital structure does not provide for
different dividend rates or other preferences, other than voting rights, between
the two classes.
<PAGE>
BFC Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
BFC Financial Corporation (the "Company" or "BFC") is a unitary savings bank
holding company which owns in the aggregate approximately 31.46% of the
outstanding BankAtlantic Bancorp, Inc. ("BBC") Common Stock. BBC is the holding
company for BankAtlantic, A Federal Savings Bank ("BankAtlantic") by virtue of
its ownership of 100% of the outstanding BankAtlantic Common Stock.
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, that involve substantial risks and
uncertainties. When used in this report, the words "anticipate", "believe",
"estimate", "may", "intend", "expect" and similar expressions identify certain
of such forward-looking statements. Actual results could differ materially from
these forward-looking statements. These forward-looking statements are based
largely on the Company's expectations and are subject to a number of risks and
uncertainties, including but not limited to, economic factors (both generally
and particularly in areas where the Company or its subsidiaries operate or hold
assets), interest rates, competitive and other factors affecting the operations,
markets, products and services, and expansion strategies of the Company and its
subsidiaries including BBC and BankAtlantic and the other factors discussed
elsewhere in this report and in the documents filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's control.
Results of Operations
The Company's basic and diluted loss per share were $0.14 and $0.13 for the
quarter ended September 30, 1998, compared to basic and diluted earnings per
share of $0.25 and $0.22 for the comparable period in 1997. The 1998 period
included an extraordinary gain of $0.01 in basic earnings per share. The 1997
period included an extraordinary gain of $0.03 in basic and $0.02 in diluted
earnings per share.
The Company's basic and diluted earnings per share were $0.20 and $0.18 for the
nine months ended September 30, 1998, compared to $1.00 and $0.93 for the
comparable period in 1997. The 1998 period included an extraordinary gain of
$0.01 in basic and diluted earnings per share. The 1997 period included an
extraordinary gains of $0.12 in basic and $.11 in diluted earnings per share.
For the quarter ended September 30, 1998, the Company reported a net loss of
approximately $1.2 million as compared to net income of approximately $1.9
million for the comparable period in 1997. Operations for the quarter ended
September 30, 1998 and 1997 included extraordinary gains of approximately
$44,000 and $207,000, respectively. The 1998 extraordinary gain, net of income
taxes was due to extinguishment of debt. The 1997 extraordinary gains, net of
income taxes was due to extinguishment of debt of approximately $115,000 and
gains on settlement of litigation of approximately $92,000.
For the nine months ended September 30, 1998, the Company reported net income of
approximately $1.6 million as compared to net income of approximately $8.0
million for the comparable period in 1997. Operations for the nine months ended
September 30, 1998 and 1997 included extraordinary gains of approximately
$61,000 and $988,000, respectively. The 1998 extraordinary gain, net of income
taxes was due to extinguishment of debt. The 1997 extraordinary gains, net of
income taxes was due to debt restructuring of approximately $181,000,
extinguishment of debt of approximately $115,000 and gains on settlement of
litigation of approximately $692,000.
Increases (decreases) in revenues for the nine and three month periods ended
September 30, 1998, as compared to the comparable periods in 1997 were as
follows (in thousands):
Nine Three
Months Months
------ ------
Interest on mortgage notes and
related receivables $ (7) (1)
Interest and dividends on securities
available for sale and escrow accounts (187) (61)
Earnings on real estate rental operations, net (89) 26
Sale of real estate 7,142 3,574
Net gain from sale of stock (1,349) --
Equity in earnings of BBC (6,972) (5,659)
Other income, net (177) 7
------- ------
Decrease in total revenues $(1,639) (2,114)
======= ======
Interest and dividends on securities available for sale and escrow accounts
decreased for the nine and three month periods ended September 30, 1998, as
compared with the same period in 1997 primarily due to decreases in investable
funds.
Earnings on real estate rental operations, net decreased for the nine months
ended September 30, 1998, as compared to the same period in 1997 primarily due
to an increase in landscaping maintenance and repairs and maintenance.
During the nine and three month periods ended September 30, 1998, the Company
sold approximately 35 acres and 17 acres of the Center Port property to
unaffiliated third parties for approximately $7.8 million and $4.4 million,
respectively. The Company recognized a net gain from the sale of real estate of
approximately $2.3 million and $1.3 million for the nine and three month periods
ended September 30, 1998, respectively. In 1996, the Company sold a 50% interest
in a property, located in Delray Beach, Florida, included in investment real
estate. Since the Company was the maker on the non-recourse mortgage note on the
property and since the Company maintained a 50% interest in the subject
property, the gain on the sale of approximately $0.6 million was deferred.
During the quarter ended June 30, 1998, 50% of the deferred profit of
approximately $0.3 million was recognized upon refinancing the property's
mortgage note. The remaining deferred profit will be recognized when the
remaining interest in the property is sold.
In February 1997, the Company sold 12.7 acres located in Birmingham, Alabama to
an unaffiliated third party for approximately $149,000 and the company
recognized a net gain on the sale of approximately $132,000. In August 1997,
approximately four acres were sold from the Center Port property to unaffiliated
third parties for approximately $843,000 and the company recognized a net gain
from the sale of real estate of approximately $185,000.
In June 1997 and January 1997, the Company sold 449,805 shares of BBC's Class A
Common Stock. Net proceeds received from these sales amounted to approximately
$3.7 million and a net gain of approximately $1.3 million was recognized during
the nine month period ended September 30, 1997.
BBC's net income applicable to common shareholders for the nine month period
ended September 30, 1998 was $2.1 million and BBC's net loss applicable to
common shareholders for the three month period ended September 30, 1998 was $9.5
million, compared to net income of $19.6 million and $6.4 million for the nine
and three month periods ended September 30, 1997, respectively. The Company's
equity in BBC's net income for the nine month periods ended September 30, 1998
was $1.6 million and the Company's net loss in BBC was $2.9 million for the
three month period ended September 30, 1998, compared to net income of $8.6
million and $2.8 million for the nine and three month periods ended September
30, 1997, respectively. The decrease in equity in earnings of BBC during the
1998 periods as compared to 1997 was due to a decrease in earnings by BBC and
the Company's decreased ownership percentage in BBC. The primary reasons for
BBC's decline in earnings for the nine and three month periods ended September
30, 1998 as compared to the same periods in 1997 were due to provisions for
valuation of mortgage servicing rights because of anticipated accelerated
prepayments due to declining interest rate environment and high levels of
refinancing, losses in BBC's trading portfolio tied to the recent downturn in
the securities market, and expenses incurred in connection with the branch
expansion and the startup of new business lines. The Company's ownership in BBC
at September 30, 1998 and 1997 was 31.46% and 41.14%, respectively, of all
outstanding BBC Common Stock. The decrease in ownership was attributable to
BBC's issuance of Class A Common Stock in a public offering in November 1997,
BBC's issuance of Class A Common Stock to acquire RBCO and LTI and the sale of
shares of BBC Class A Common Stock by the Company during 1997. This decrease was
offset in part by reductions in the outstanding shares of BBC Common Stock
primarily due to BBC's repurchases of its shares. At September 30, 1998, the
Company's ownership of BBC Class A and B Common Stock was approximately 25% and
47%, respectively.
Other income decreased for the nine months ended September 30, 1998 as compared
to the same period in 1997 primarily due to proceeds received during the 1997
period relating to a loan from an affiliate which was written-off in prior
years.
Increases (decreases) in expenses for the nine and three month periods ended
September 30, 1998, as compared to the comparable periods in 1997 were as
follows (in thousands):
Nine Three
Months Months
------ ------
Interest on subordinated debentures $ (222) (40)
Interest on mortgages payable
and other borrowings (372) (193)
Cost of sale of real estate 4,845 2,483
Expenses related to real estate held
for development and sale, net (65) (48)
Write-down of investment 184 --
Employee compensation and benefits 2 23
Occupancy and equipment 1 --
Reversal of provision for litigation 2,272 --
General and administrative, net (170) 14
------- ------
Increase in total cost and expenses $ 6,475 2,239
======= ======
Interest on subordinated debentures decreased for the nine and three month
periods ended September 30, 1998 as compared to the same periods in 1997
primarily due to reduction in the outstanding amount of Debentures and the
accrual of interest during the nine month period ended September 30, 1997 on the
delayed funding of the 1989 Exchange settlement liability.
Interest on mortgage payables and other borrowings decreased for nine and three
months periods ended September 30, 1998 as compared to the same periods in 1997
primarily due to reduction in borrowings.
Expenses related to real estate held for development and sale, net decreased for
the nine and three month periods ended September 30, 1998 as compared to the
same periods in 1997 primarily due to decreased property taxes and professional
fees. This decrease was offset in part by an increase in administrative
expenses.
In June 1998, the Company reduced its carrying value on an investment in an
affiliated partnership by $184,000.
In connection with the litigation entitled Short vs. Eden, et al., the Company
at December 31, 1996 had an accrual of approximately $3.0 million included in
other liabilities. The Company in April 1997 disbursed approximately $783,000
and received a release and satisfaction of judgment. Accordingly, the remaining
accrual of approximately $2.3 million was reversed during the quarter ended June
30, 1997.
General and administrative, net decreased for the nine month period ended
September 30, 1998 as compared to the same period in 1997 primarily due to
decreased legal fees, trustee fees and amortization expense. This decrease was
offset in part with an increase in intangible taxes.
Financial Condition
The Company's total assets at September 30, 1998 and at December 31, 1997 were
$93.8 million and $98.9 million, respectively. The majority of the difference at
September 30, 1998 as compared to December 31, 1997 was due to decreases in (i)
securities available for sale, (ii) real estate held for development and sale,
(iii) investment real estate, net and (iv) other assets. These decreases were
offset in part by the increase in investment in BBC.
Securities available for sale decreased primarily due to sales of securities so
as to fund the advances for development and construction costs at the Company's
Center Port property. This decrease in securities available for sale was offset
in part by the availability of funds provided from the release of the Meador
(1989 Exchange) settlement escrow which were invested in securities available
for sale.
Real estate held for development and sale decreased primarily due to the sale of
35 acres of the Company's Center Port property to unaffiliated third parties.
This decrease in real estate held for development and sale, net was offset in
part with an increase in advances for development and construction costs.
The Company in 1996 sold a 50% interest in a property included in investment
real estate. Since the Company was the maker on the non-recourse mortgage note
on the property, the investment real estate and mortgage note were not removed
from the financial statements. In May 1998, the mortgage note was refinanced and
the Company is no longer the sole maker on the non-recourse mortgage note on the
property. Therefore, the mortgage note and investment real estate entries
relating to the property were removed from the Company's Consolidated Statements
of Financial Condition in 1998 and the Company's remaining investment in the
property is now carried in investment real estate using the equity method of
accounting.
Investment in BBC increased by $4.7 million due to equity in earnings of BBC of
approximately $1.6 million and the net effect of other BBC capital transactions
of approximately $4.0 million. This increase was offset in part by dividends of
approximately $0.9 million in 1998.
Other assets decreased due to the release from escrow of approximately $2.1
million that had been placed in an escrow account related to the Meador
litigation settlement and payments made in accordance with the terms of the
Exchange litigation settlements. The settlement agreement provided for a release
from escrow of any balances remaining at the end of a specified period and
accordingly, approximately $2.1 million was released from escrow in January
1998. Any balances remaining in the escrow accounts under litigation settlements
will be released to the Company in January 2000.
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in
market valuation which arise from interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. The Company's primary
market risk is equity risk through its investment in BBC.
Equity Pricing Risk
The Company's primary equity investment is its investment in BBC. Since this
investment is carried using the equity method of accounting, changes in market
price of BBC stock would not have a direct impact on the financial statements,
however, a change in market price could likely have an impact on the investment
community's view of the Company. This investment was entered into for purposes
other than trading purposes. The following table shows changes in the market
value of the Company's investment in BBC at September 30, 1998 based on
percentage changes in market price. Actual future price changes may be different
from the changes identified in the table below (in thousands):
Percent
Change In Market
Market Price Value
------------ -----
20.00% $110,885
10.00% 101,644
0.00% 92,404
(10.00)% 83,196
(20.00)% 73,923
Management does not believe that market risk on other equity instruments would
have a significant impact on the financial condition of the Company.
Below is an analysis of BBC's equity pricing risk at September 30, 1998. The
following table measures changes in the fair value of BBC's trading, available
for sale securities and securities sold not yet purchased at September 30, 1998
based on percentage changes in fair value. (Dollars in thousands)
Available
for Sale
Percent Trading Equity Securities
Change in Securities Securities Sold Not Yet
Fair Value Fair Value Fair Value Purchased
---------- ---------- ---------- ---------
20.00% $27,748 $13,710 $ 1,632
10.00% 25,435 12,568 1,496
0.00% 23,123 11,425 1,360
(10.00)% 20,811 10,283 1,224
(20.00)% 18,498 9,140 1,088
Interest Rate Risk
The majority of BBC's assets and liabilities are monetary in nature subjecting
BBC to significant interest rate risk. BBC has developed a model using vendor
software to quantify its interest rate risk. A sensitivity analysis was
performed measuring BBC's potential gains and losses in net portfolio fair
values of interest rate sensitive instruments at September 30, 1998 resulting
from change in interest rates. The model calculates the net potential gains and
losses in net portfolio fair value by : (i) discounting cash flows from existing
assets, liabilities and off-balance sheet contracts to determine fair values at
September 30, 1998, and (ii) discounting the above expected cash flows based on
instantaneous and parallel shifts in the yield curve to determine fair values at
September 30, 1998. The difference between the fair value calculated in (i) and
(ii) is the potential gains and losses in net portfolio fair values. BBC's
management has made estimates of fair value discount rates that it believes to
be reasonable. However, because there is no quoted market for many of these
financial instruments, BBC's management has no basis to determine whether the
fair value presented would be indicative of the value negotiated in an actual
sale. BankAtlantic's fair value estimates do not consider the tax effect that
would be associated with the disposition of the assets or liabilities at their
fair value estimates.
Below is an analysis of BBC's interest rate risk at September 30, 1998 as
calculated utilizing BBC's model. The table measures changes in net portfolio
value for instantaneous and parallel shifts in the yield curve in 100 basis
point increments up or down (dollars in thousands).
Changes Net Portfolio Dollar
in Rate Value Amount Change
------- ------------ ------
+200 bp $ 316,481 $ (27,358)
+100 bp 354,096 10,257
0 bp 343,839 0
(100) bp 276,090 (67,749)
(200) bp 213,216 (130,623)
Certain assumptions by BBC in assessing the interest rate risk were utilized in
preparing the preceding table. These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and market values of certain assets under
various interest rate scenarios. It was also assumed that delinquency rates will
not change as a result of changes in interest rates although there can be no
assurance that this will be the case. Even if interest rates change in the
designated increments, there can be no assurance that BBC's assets and
liabilities would perform as indicated in the table above. In addition, a change
in U.S. Treasury rates in the designated amounts, accompanied by a change in the
shape of the yield curve could cause significantly different changes to the fair
values than indicated above. Furthermore, the result of the calculations in the
preceding table are subject to significant deviations based upon actual future
events, including anticipatory and reactive measures which BBC may take in the
future.
Liquidity and Capital Resources
Pursuant to terms of escrow agreements, approximately $2.1 million was released
during January 1998 from escrow accounts established to fund payments on
Debentures that had been called for redemption. At September 30, 1998,
approximately $2.8 million remained to fund future payments. Any amounts
remaining in escrow in January 2000 will be released to the Company and any
future payments on the called Debentures will be paid from the Company's working
capital. At September 30, 1998, there was approximately $5.3 million of called
but unpresented Debentures.
The Company is not obligated to pay interest on Debentures once they are called
for redemption. Pursuant to the terms of the Debentures, the Company may elect
to defer interest payments on its subordinated debentures if management of the
Company determines in its discretion that the payment of interest would impair
the operations of the Company. Items considered in the decision to defer the
interest payment were included, among other items, the ability to identify which
debentures are held by Holders in Due Course and current operating expenses.
Since December 31, 1991, the Company has deferred interest payments on its
subordinated debentures.
As previously indicated, the Company holds approximately 31.46% of all
outstanding BBC Common Stock. Presently, BBC has paid a regular quarterly
dividend since its formation and management of BBC has indicated that it
currently anticipates that it will pay regular quarterly cash dividends on the
BBC Common Stock. The Company's cash position and its ability to meet its
obligations will in part be dependent on the financial condition of BBC and the
payment by BBC of dividends to its shareholders, including the Company.
At September 30, 1998, BankAtlantic's core, Tier 1 risk-based and total
risk-based capital ratios were 9.12%, 13.71% and 14.96%, respectively. Based on
these capital ratios, BankAtlantic meets the definition of a well-capitalized
institution.
Cash Flows
A summary of the Company's consolidated cash flows is as follows (in thousands):
Nine months ended
September 30,
-------------
1998 1997
---- ----
Net cash provided (used) by:
Operating activities $ (608) (8,265)
Investing activities 9,068 9,911
Financing activities (7,907) (2,996)
------- -------
Increase (decrease) in cash
and cash equivalents $ 553 (1,350)
======= =======
The primary sources of funds to the Company for the nine months ended September
30, 1998 were release of funds from escrow accounts, principal reductions on
loan receivables, proceeds from redemption and maturities of securities
available for sale, revenues from property operations, and dividends from BBC.
These funds were primarily utilized to reduce mortgage payables and other
borrowings, to fund development and construction costs at the Center Port
property, to purchase securities available for sale, and to fund operating
expenses and general and administrative expenses. Funds received from the sale
of real estate were utilized to reduce related mortgage debt.
Year 2000 Considerations
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. The
consequences of incomplete or untimely resolution of year 2000 issues represent
an uncertainty that could affect future financial results. The year 2000 issue
affects virtually all companies and organizations.
The Company's computer system is composed of seven personal computers running on
a Windows NT network. The Company's primary in-house computer applications
consist of general ledger, accounts payable, property management, spreadsheet
and database applications. The personal computers have been checked and found to
be year 2000 compliant. The vendor of the general ledger, accounts payable and
property management packages have indicated that their software is also year
2000 compliant. The spreadsheet and database applications utilized are the most
recent versions available from Microsoft. Accordingly, the Company does not
expect to expend material amounts to third parties to remediate any year 2000
problems. Additionally, the Company does not anticipate that it will have any
material expenditure with respect to real estate owned by the Company. Should
any of the above systems fail, the Company believes it would be able to process
its data and monitor its accounts through manual systems or other alternative
means.
With respect to the Company's subsidiary BBC, BBC has undertaken various
initiatives intended to ensure that computer applications will function properly
with respect to dates in the year 2000 and thereafter. BBC has established a
year 2000 action plan which was presented to the Board of Directors on December
2, 1997. The action plan was developed using the guidelines outlined in the
Federal Financial Institutions Examination Council's "The Effect of 2000 on
Computer Systems". The six phases of BBC's action plan are: (1) Awareness -
Define the Year 2000 issues, gain executive level support, establish a project
team and develop a strategy which encompasses technology and business issues,
(2) Assessment - Assess the size and complexity of the issues and detail the
magnitude of the effort necessary to address them, (3) Renovation - Code
enhancements, hardware and software upgrades, and system replacements, (4)
Validation - Testing of software, system components and connections between
systems, (5) Implementation - Systems should be certified as Year 2000 ready by
the business users, (6) Contingency planning - determination of strategy to
handle the most likely worst case scenarios on year 2000 issues.
BBC believes that it has completed the awareness and assessment phases of its
action plan. However, its renovation, validation and implementation phases were
only approximately 10% completed at September 30, 1998 with anticipated 80%, 95%
and 100% completion as of December 31, 1998, March 31, 1999 and June 30, 1999,
respectively. The contingency planning phase has not commenced but is currently
scheduled to be 50% complete as of December 31, 1998, 90% complete as of March
31, 1999 and 100% completed as of June 30, 1999. BBC and its third party vendors
are currently formulating a contingency strategy on how to handle most likely
worst case scenarios related to the year 2000 disruptions.
Although BBC expects to meet its action plan schedule, there are no assurances
that this timetable will be completed according to schedule.
The majority of BBC's mission critical information technology system structure
("IT") has been outsourced to third party vendors. BBC's internal IT primarily
consists of a minicomputer for item processing and a personal computer based
wide area network. The wide area network's primary function is to communicate
with third party service bureaus and secondarily to run non-critical personal
computer applications such as E-mail, word processing and spreadsheet programs.
BBC has various non-IT systems with embedded microcontrollers, including but not
limited to, vault security equipment, branch security equipment, telephone
systems, circuit boards on building equipment, building elevators, and
appliances. The above IT and non-IT systems could fail or create erroneous
results by or at the year 2000.
BBC relies on third party vendors to perform the loan, deposit, general ledger
and other application processing. BBC is monitoring the progress of these third
party vendors in meeting their year 2000 obligations and is actively involved in
the implementation and testing of the modified application programs. The third
party vendors are scheduled to complete the update of the application programs
during the fourth quarter of 1998 with BBC testing the programs during the first
quarter of 1999. Although BBC currently has no indication that its third party
vendors will not be able to operate as a result of year 2000 related problems,
there is no assurance that these third party vendors will meet their obligations
to BBC based on potential problems relating to year 2000. Included in the
Statement of Operations during the three and nine months ended September 30,
1998 were $87,000 and $150,000, respectively of third party expenses related to
the year 2000 action plan. BBC estimates that it will spend an additional
$130,000 on year 2000 upgrades during the remaining three months of 1998 and
another $600,000 during the year ended December 31, 1999, which expenditures
will be funded from operating cash flows. The above expenses do not include
employee compensation allocated for time spent on the year 2000 project.
<PAGE>
PART II - OTHER INFORMATION
Item 1 through 3. - Not applicable.
Item 4. - Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Shareholders was held on July 30,
1998. At that meeting Alan B. Levan was elected to the Board of
Directors for a three-year term ending in 2001 with 2,217,646 shares
voted for his election and 5,018 shares for which the vote was
withheld.
Item 5. - Not applicable.
Item 6. - Exhibits and Reports on Form 8-K
a) Index to Exhibits:
27.1 Financial data schedule for the nine months ended September 30,
1998.
27.2 Restated financial data schedule for the nine months ended
September 30, 1997.
b) No report on Form 8-K was filed during the three months ended
September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BFC FINANCIAL CORPORATION
Date: November 12, 1998 By: /s/ Alan B. Levan
----------------------
Alan B. Levan, President
Date: November 12, 1998 By: /s/ Glen R. Gilbert
------------------------
Glen R. Gilbert, Executive Vice
President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,157
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 919
<INVESTMENTS-CARRYING> 919
<INVESTMENTS-MARKET> 919
<LOANS> 2,538
<ALLOWANCE> 772
<TOTAL-ASSETS> 93,751
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 709
<LONG-TERM> 13,801
0
0
<COMMON> 79
<OTHER-SE> 58,162
<TOTAL-LIABILITIES-AND-EQUITY> 93,751
<INTEREST-LOAN> 159
<INTEREST-INVEST> 178
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<INTEREST-TOTAL> 337
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<INTEREST-EXPENSE> 1,534
<INTEREST-INCOME-NET> (1,197)
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<EXPENSE-OTHER> 1,495
<INCOME-PRETAX> 1,943
<INCOME-PRE-EXTRAORDINARY> 1,548
<EXTRAORDINARY> 61
<CHANGES> 0
<NET-INCOME> 1,609
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 772
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<ALLOWANCE-CLOSE> 772
<ALLOWANCE-DOMESTIC> 772
<ALLOWANCE-FOREIGN> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 446
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,062
<INVESTMENTS-CARRYING> 2,062
<INVESTMENTS-MARKET> 2,062
<LOANS> 2,666
<ALLOWANCE> 772
<TOTAL-ASSETS> 89,794
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 511
<LONG-TERM> 24,808
0
0
<COMMON> 26
<OTHER-SE> 47,807
<TOTAL-LIABILITIES-AND-EQUITY> 89,794
<INTEREST-LOAN> 166
<INTEREST-INVEST> 365
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 531
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<INTEREST-EXPENSE> 2,128
<INTEREST-INCOME-NET> (1,597)
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1,349
<EXPENSE-OTHER> 1,662
<INCOME-PRETAX> 10,057
<INCOME-PRE-EXTRAORDINARY> 7,015
<EXTRAORDINARY> 988
<CHANGES> 0
<NET-INCOME> 8,003
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 0.93
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<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
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<RECOVERIES> 0
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</TABLE>
